There are a couple of strategies in FX trading and among these is the Forex news trading strategy. This strategy profits from changes in the short term price as important news happens. As this economic news is released, movements in currency pairs are being observed. Thus, this strategy goes to show that it is logical and there are reasons for it to provide profits.
The amount of price that a currency pair can get depends on the weakness or the strength of the country’s economy. This goes to show that when there are changes in the economy, there will also be movement in the price. It can either go up or down.
The Primary Market Mover
In the Forex market, the primary market mover is the central banks. They are responsible for drastic changes in the interest rates resulting in changes in the currency value. As for news trading, they can provide the most reliable and the quickest trading results since they are directly importing news from the decisions of the central bank.
When an economy release, the Forex market mostly moves very sharply within a given trend or even a breakout. Traders are highly advised to trade based on the strength and the movement of the market during a breakout.
Understanding the Step-By-Step Approach of the Forex News Trading Strategy
Identifying The Market Direction
The most common trading approach is identifying the direction of the market with bases of activity in the central bank. With that, you can take a trade in the direction depending on the specific trading strategy. Four of the main drivers of the economy are the retail sales, interest rate, Consumer Price Index (CPI), and the GDP. These economic releases should be your basis as to which currency can become stronger or weaker.
Ignoring the First Impression
Ignoring the first impression while waiting for a correction seems to be a very wise decision. So, why is correction important?
You will always anticipate the price in FX trading. Because of this, there will be no 100% exact strategy that will remain correct all the time. Some news will have a great effect on the market. Therefore, you need to make sure that the trades are moving in the direction that you have previously set as you wait for the correction.
Following the previous strategy, you must wait for the market price to end with the first impression as well as a correction. There are a lot of cases in the market that corrects a primary wave of 38.2% – 61.8%. This goes to show that you can only enter a trade when the market portrays a reversal candlestick of 38.2% to 61.8%.
When you take profit, it should be based on a 1:1 risk-reward ratio. By the time the trade reaches 100% of the total risk, you must close the 50% of the trade. For the remaining part, you should close it whenever a market reversal shows near the resistance level and near term support.